A capital raise is when the founders of a business go to investors either privately, or via the capital markets (Venture Capital and Stock markets) to inject capital to fund their next stage of growth.
Funding typically occurs in five stages, or rounds, labelled Seed, then Series A through to Series D and through to Initial Public Offering.
As a business client of Grayfords, you are in the enviable position of having access to our corporate lawyers and specialist capital markets partners to assist with not only the legal aspects of securing growth capital through to IPO, but all of this at incredibly reasonable prices.
How large are capital raises?
Precise country-specific industry data for capital raises that’s publicly available can be difficult to come by because many transactions occur amongst unlisted companies for undisclosed amounts. But there are some indicators we can point to in order to give a sense of scale.
According to the KPMG Venture Pulse 2020/21 report, Venture Capital funding continued to increase between 1 July 2020 and 1 July 2021, to a record £2 billion, up from £1.58 billion in the previous year.
Meanwhile in the US, the Venture Capital industry inked 2021 into the record books with an astounding over US$238.7 billion spread across some 12,837 investments, according to Venture Capital database Pitchbook.
Further along the funding path, according to FactSet data, 1073 companies IPO’d in 2021, raising $317 billion.
How we can help?
Series A to Series D :
We can assist you in preparing an offer document to ensure that it complies with the relevant exemptions and contains all the information which an investor will want to see so as to ensure peace of mind to you and your investors.
Financial Services and Markets Act 2000
The Financial Services and Markets Act 2000 (FSMA) states that a person must not, in the course of business, engage in investment activity unless they are approved as an authorised person or are exempt.
In order to be an authorised person, you must be authorised by the Financial Conduct Authority (FCA) which can be a long and expensive process.
Under the Financial Services and Markets Act (Financial Promotion) Order 2005 (FPO), there are a number of exemptions that can be utilised in order to allow financial promotions to be made by companies looking to raise finance.
Once we have advised as to whether it is possible to make a financial promotion, it will be necessary for an offer document to be produced setting out the terms of the investment. Care should, however, be taken to determine whether or not the Prospectus Rules (as set out by the Financial Conduct Authority and its Prospectus Directive) will apply to such offer document.
The Prospectus Directive is a single regime throughout the EU which governs the requirements of an offer document and sets out the Prospectus Rules which govern content, format, approval and publication of the offer document.
There are a number of exceptions as to whether the Prospectus Rules will apply, the most common being the number of people to whom the offer is being made to. If the offer is being made to less than 150 persons, then the offer may fall outside of the Prospectus Rules. It is, therefore crucial to limit and control the offer, especially prior to the offer document being issued. The Prospectus Rules may also not apply if the total consideration for the shares being offered does not exceed EUR €100,000 (or the equivalent thereof).
We can assist you in preparing the offer document to ensure that (where applicable) it complies with the relevant exemptions and contains all the information which an investor will want to see.
Managing the offer process
Managing the offer process is very complex and it is necessary to consider compliance with FSMA, the FPO and the Prospectus Rules (in order to ensure that the financial promotion is exempt) as well as other regulations, including Money Laundering Regulations and ensuring that potential investors are who they say they are.
Any financial promotion/offer document that is made/prepared will need to be fully verified by the board of the company. This is a time consuming, but an important process whereby each statement that is made needs to be independently supported so as to ensure that the board are not making any misrepresentations or negligent misstatements.
Initial Public Offering via AIM or LSE:
Undertaking an IPO is time-consuming, challenging, and expensive. Our approach ensures a smooth, efficient process with a deep appreciation of cost at every stage.
Advantages of IPO
- increased long-term capital;
- better access to cash and improved liquidity;
- increased market value;
- improved growth opportunities;
- better ability to attract and keep key personnel;
- increased prestige; and
- greater opportunities for mergers and acquisitions through equity.
The core legal work involves drafting all principal offering documents, including the IPO prospectus, which must be filed with the exchange as part of the IPO registration statement.
The registration statement is also an important element for the regulators after filing the IPO prospectus and entire registration statement commences, subject to review and comment by the regulators. Once this process is complete, your company will complete an initial listing application with the exchange. Underwriters will then file information about compensation arrangements for your IPO with the FCA.